Prada Has Nine Million Shares Outstanding, Generates Free Cash Flows

question 5

Multiple Choice

Prada has nine million shares outstanding, generates free cash flows of $ 40 million each year and has a cost of capital of 10%. It also has $30 million of cash on hand. Prada wants to decide whether to repurchase stock or invest the cash in a project that generates free cash flows of $5 million each year. Should Prada invest or repurchase the shares?

• A) indifferent between options
• B) repurchase
• C) invest
• D) cannot say for sure

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Definitions:

Activated Needs

Needs that have been aroused and are driving behavior towards goal attainment.

Equity Theory

Posits that people will act to eliminate any felt inequity in the rewards received for their work in comparison with others.

Motivation

The process that initiates, guides, and maintains goal-oriented behaviors, often driven by internal or external factors.

Content Theories

Theories in psychology that focus on understanding the specific factors that motivate individuals.